View from City Road: Keep a full and frank exchange

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The Independent Online
THERE is a growing feeling in the City that the Office of Fair Trading should be taking a closer look at the London Stock Exchange's rule book, which is said to prevent newcomers from gaining a foothold in share trading.

This feeling is concentrated among the various potential rivals, who would like to wrest some of the exchange's business. One is Instinet, the Reuters operation that has made inroads in the US, and another is Stephen Raven's Tradepoint Financial Networks.

The idea of 'breaking the Stock Exchange monopoly' might be appealing. However, consider what would spring from such a move. Brokers would have to invest in yet more screens and equipment for each new system. But the most serious impact would be on market liquidity.

At the moment investors can come to London and sell 1 million ICI shares without too much difficulty. What if there were, say, three trading systems? The likelihood is that dealing would fragment and costs would rise. Liquidity would dry up and spreads would widen. Most share-dealing business would move away from London.

It is not as if member firms are jumping up and down demanding these new trading systems. Indeed, the OFT is happy to admit that it has not received any official complaints from the market concerning the Stock Exchange's position.

The City's energies could be better expended on helping the exchange to sort out Taurus, fast in danger of becoming the longest-running London farce since No Sex Please We're British. The only real winners from increased intervention by the OFT would be Frankfurt and Paris.

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